A. General: This reference application U/S 133(1) of the ITO, 2001 challenges the ATIR order dated -----------, which classified gains from the sale of immovable properties (Rs. ------------ declared in wealth statement) by applicant Abdul Majeed Chaudhry as business income under Section 18, rather than capital gains under Section 37(1A).   

The applicant, an individual not engaged in real estate business (previously employed by a housing society, with business income from agriculture), was audited under Section 214C for tax year 2015. Lower authorities (DCIR and CIR(A)) upheld the reclassification.  Key Questions Framed by --HC (---------)

Is gain on immovable property capital gain (Section 37(1A)) or business income (Section 18)? Does Section 37(1A) distinguish between property dealers (regular transactions) and one-time sellers?  

B. Applicant's Arguments: Applicant not in real estate business; properties sold as one-time transaction. Section 37(1A) (specific provision post-Finance Act 20--) overrides general Section 18; specific law prevails, favoring taxpayer. Fancy Foundation (------------) inapplicable (pre-2001 Ordinance changes).  

C. Respondent's Arguments: Undeclared gains; properties sold within 3 years (no Section 37(1) exemption). Finance Act 2021 Explanation to Section 18(1)(b) clarifies real estate business gains as business income. 

D. --HC Deliberation: Section 37(1A) inserted 2012, non-obstante claus) mandates taxation of all immovable property disposal gains as capital gains, overriding Section 18 regardless of "business" intent (e.g., adventure in trade per Section 2(10)). Pre-2012 law excluded immovable property from capital assets; post-2012 change makes Section 37(1A) specific and prevailing. Fancy Foundation misconstrued by lower fora. 2021 Explanation inapplicable (applies to cooperative societies only). 

E. IHC Decision: Question (i) answered affirmatively (capital gains under 37(1A)); Question (ii) negatively (no distinction needed). ATIR order set aside.

II. DETAILS

A. Reference for Issue

--------

-------- 

B. Brief Facts & Audit Proceedings

1 to  5 

C. Applicant's Submissions

D. Learned Counsel (--------------) for Applicant Submissions

1 to  6

E. Learned Counsel (---------------) for Respondent Department Submissions

1 to 2 

F. IHC Deliberations

1 to 4 with several sub-points

G. Conclusion, Answers to Questions and Disposal

1 to 2.2.

C. List of other relevant TLQCs 

(a) 3035 of 19.2.25 about Capital Gain Tax on Property & Shares KTBA, etc Seminars

(b) 3006 of 20.1.25 about Resident Pakistanis in UAE & UK – Rent & Capital gain not taxable- ATIR DB

(c) 2993 of 8.1.25 about Pakistani tax residents' UAE & UK Property Capital gain & Rent taxability Conflicting ATIR orders

(d) 2510 of 28.9.23 about No Super Tax on Exempt Capital Gain & Tribunal Importance

(e) 2162 of 18.1.23 about WHT on Capital Gain on Buy-back of shares be resolved quickly - SHC

(f) 3394 of 15.12.25 about Immovable Properties Valuation of Islamabad Revised upward drastically - SRO 2392

(g) 2945 of 1.11.24 about 52 cities / areas Immovable Properties Value Revised from 1.11.24

(h) 2072 of 18.11.22 about Immovable Property Rent not Taxable but Maintenance issue

(i) 435 9.3.18 about SST- Amendments re Renting of Immovable Property Services

(j) 340 21.8.17 about No SST on Rent of Immovable Property but SST issue Rent related Services??

IV. FURTHER DETAILS & SERVICES

Should you require any clarification or explanations in respect of the above or otherwise, or require Advance on 4B or 4C, Income Tax, Federal & Provincial Sales Tax or Withholding Tax Statement, Advisory, Return Filing or Review services, please feel free to email Mr Amsal at amsal@kasbati.co with CC to info.kasbati@professional-excellence.com, asif.s.kasbati@professional-excellence.com.

Best regards for Here & Hereafter
Asif S Kasbati (FCA, FCMA & LLB)

Managing Partner 

Kasbati & Co (1400+ Tax, Levies, Companies, Economy, Inflation, HR, Banking, Finance, etc Quick Commentary Service Provider and High Level 440+ Tax & Levies Laws Consultants)